Financial Accounting · Subsidiaries

Parent, Subsidiary and Control under IFRS 10

Q: What is control under IFRS 10?

Control means the investor has power over the investee, is exposed to variable returns from it, and can use its power to affect those returns. All three must be present. If an investor controls an investee, the investee is a subsidiary.

Q: What is the difference between a subsidiary and an associate?

A subsidiary is controlled by the parent and is consolidated line by line. An associate is one where the investor has significant influence but not control, normally 20% to 50% of voting power. It is accounted for using the equity method.

Q: Can a company with less than 50% of the votes be a parent?

Yes, if it still has control. This could arise through contractual rights, rights to appoint the majority of the board, or other facts that give it power. The percentage is a guide, not the definition.

Q: When is a parent exempt from preparing consolidated statements?

Mainly when the parent is itself a subsidiary, its owners do not object, its securities are not publicly traded, and a higher parent publishes IFRS consolidated statements for public use. All conditions must be met.

Updated 11 October 2026 · Fact-checked

A subsidiary is an entity controlled by another entity, the parent. Under IFRS 10, control means power over the investee, exposure to variable returns, and the ability to use that power to affect those returns. A parent with subsidiaries must prepare consolidated financial statements, unless an exemption applies.

Understand Group Structure: Parent, Subsidiary and Control

A group is a parent and all its subsidiaries. Each company is a separate legal entity and keeps its own accounts. But investors in the parent want to see the whole economic unit. That is why the parent prepares consolidated financial statements, which present the group as if it were a single entity.

The test for a group is control, not legal ownership. IFRS 10 says an investor controls an investee when it has all three of these: power over the investee, exposure or rights to variable returns from its involvement, and the ability to use its power to affect the amount of those returns. A parent is an entity that controls one or more entities. A subsidiary is an entity controlled by the parent.

In FA questions, control is usually shown by voting rights. Holding more than 50% of the voting rights normally gives power, so a holding of 51% or more of the ordinary shares normally means a subsidiary. Control can exist with less than 50%, for example through contractual rights or the right to appoint most of the board. It may not exist with more than 50% if another party has rights that block you. Always read the facts.

Compare this with an associate. An associate is an entity over which the investor has significant influence but not control. Significant influence is normally presumed at 20% to 50% of voting power. An associate is not consolidated line by line. It is accounted for using the equity method (IAS 28). A simple investment with no significant influence is a financial asset under IFRS 9.

A parent need not prepare consolidated statements in limited cases. The main one is when the parent is itself a wholly owned subsidiary, or a partially owned subsidiary whose other owners do not object, and its debt or equity is not publicly traded, and its own parent produces IFRS consolidated statements for public use. Also, a subsidiary is not left out of consolidation because its activities differ from the rest of the group, or because it is loss-making.

Key formulas to remember

Control (IFRS 10): Control = power + exposure to variable returns + ability to use power to affect returns; All three elements must be present. If one is missing, there is no control.
Parent and subsidiary: Parent controls → subsidiary → consolidate; Consolidation is line by line, combining 100% of assets, liabilities, income and expenses, with a non-controlling interest for any part not owned.
Ownership guide: > 50% voting rights → normally subsidiary; 20% to 50% → normally associate (significant influence); < 20% → normally investment; These are guides based on voting rights. Other facts about control can override them.
Exemption from preparing consolidated statements: Parent is itself a subsidiary + owners agree + no public market for its securities + ultimate or intermediate parent publishes IFRS consolidated statements; All conditions must be met. Learn this as a short checklist.
Accounting treatment by relationship: Subsidiary: consolidate (IFRS 10); Associate: equity method (IAS 28); Other investment: IFRS 9; The question to ask first is always: how much control or influence?

How to solve Group Structure: Parent, Subsidiary and Control questions

Use this method for any question asking whether an entity is a subsidiary, an associate or neither, or whether consolidation is needed.

1Identify the investor and the investee, and note the percentage of voting rights held.
2Test for control: does the investor have power, exposure to variable returns, and the ability to use power to affect returns?
3If voting rights are above 50% and no other party has blocking rights, conclude control and a subsidiary. Check the facts for exceptions, such as contractual rights or board control.
4If there is no control, ask whether there is significant influence, normally 20% to 50% of voting rights or board representation. If so, it is an associate.
5If neither applies, treat it as an investment under IFRS 9.
6If there is a subsidiary, decide whether consolidated statements are required. Check whether the exemption conditions are all met.
7State the conclusion clearly and name the accounting treatment: consolidate, equity method, or financial asset.

Quickest way: Percentage and facts check

When to use it: Use it for multiple choice questions in Section A where you have about three minutes per question or less.

Underline the percentage of voting rights.
Over 50%: tick subsidiary unless the wording points to blocked or lost power.
20% to 50%: tick associate unless the wording shows control.
Under 20%: tick investment unless the wording shows significant influence.
Scan for words like board, veto, contract, or exemption, because they change the answer.
For exemption questions, check every condition. One missing condition means consolidation is required.

Common mistakes in Group Structure: Parent, Subsidiary and Control

Saying control only exists above 50% ownership.
Students learn the percentage rule and treat it as the definition.
Fix: Remember that the definition is power, returns and the link between them. Percentages are a guide. Look for board rights or contracts.
Treating every holding over 50% as a subsidiary automatically.
The rule of thumb is overstated.
Fix: Check whether another party holds rights that stop the investor directing the investee's activities. If so, there is no power.
Excluding a subsidiary from consolidation because it makes losses or has different activities.
Students think the group accounts should show only similar businesses or good results.
Fix: Control decides consolidation. Different activities or losses are not grounds for exclusion.
Confusing a subsidiary with an associate and consolidating line by line for both.
Both involve owning shares in another company.
Fix: Subsidiary means control and full consolidation. Associate means significant influence and the equity method, one line in the group statements.
Quoting only some of the exemption conditions.
Students remember the first condition, that the parent is itself a subsidiary.
Fix: Learn the full checklist. The owners must not object, securities must not be publicly traded, and a higher parent must publish IFRS consolidated statements.

Worked examples

Example 1

Alpha buys 60% of the voting shares of Beta. It appoints all the directors of Beta and no other shareholder has special rights. Gamma, a third company, is 30% owned by Alpha, which has two of its seven board seats. Classify Beta and Gamma and state the treatment in Alpha's group accounts.

Show the solution

Beta: Alpha holds 60% of voting rights, which gives power. It appoints all directors, so it directs Beta's activities and affects its returns.
All three elements of control are met, so Beta is a subsidiary.
Gamma: Alpha holds 30%, which is below 50%, so there is no control from voting rights alone. Two of seven board seats is not a majority.
Alpha has board representation and a holding between 20% and 50%, so it has significant influence. Gamma is an associate.
Treatment: Beta is consolidated line by line. Gamma is accounted for using the equity method.

Answer: Beta is a subsidiary and is consolidated. Gamma is an associate and is equity accounted.

Example 2

Delta plc is 80% owned by Omega plc, a listed parent that publishes IFRS consolidated statements. Delta plc owns 70% of Sigma Ltd. Delta's shares are not traded publicly, and its minority shareholders have been told and do not object to Delta not preparing consolidated statements. Must Delta prepare consolidated financial statements?

Show the solution

Delta controls Sigma with 70% of its voting rights, so Delta is a parent and would normally consolidate Sigma.
Check the exemption conditions. Delta is itself a subsidiary of Omega, which owns 80%.
Delta's other owners have been informed and do not object.
Delta's securities are not publicly traded.
Omega, its parent, produces IFRS consolidated statements available for public use.
All conditions are met, so Delta is exempt.

Answer: No. Delta is exempt from preparing consolidated financial statements because all the exemption conditions are met.

Exam tips

In multiple choice questions, circle the percentage first, then look for facts that override it, such as board control or contractual rights.
For multiple response questions, select exactly the number stated, and make sure each choice satisfies the full definition, not just part of it.
Learn the exemption conditions as a checklist. A scenario often leaves one out to test you.
Be ready to name the correct standard and treatment: IFRS 10 consolidation, IAS 28 equity method, IFRS 9 investment.
Do not spend long on this topic in Section B. The consolidation calculations that follow carry more marks, so use this topic to decide quickly whether to consolidate.

Practice questions from Subsidiaries

Group Structure: Parent, Subsidiary and Control in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsGroup Structure, Control and Consolidation Principles

Group Structure: Parent, Subsidiary and Control: frequently asked questions

What is control under IFRS 10?

Control means the investor has power over the investee, is exposed to variable returns from it, and can use its power to affect those returns. All three must be present. If an investor controls an investee, the investee is a subsidiary.

What is the difference between a subsidiary and an associate?

A subsidiary is controlled by the parent and is consolidated line by line. An associate is one where the investor has significant influence but not control, normally 20% to 50% of voting power. It is accounted for using the equity method.

Can a company with less than 50% of the votes be a parent?

Yes, if it still has control. This could arise through contractual rights, rights to appoint the majority of the board, or other facts that give it power. The percentage is a guide, not the definition.

When is a parent exempt from preparing consolidated statements?

Mainly when the parent is itself a subsidiary, its owners do not object, its securities are not publicly traded, and a higher parent publishes IFRS consolidated statements for public use. All conditions must be met.